Economically and morally, the minimum wage hike makes perfect sense

Walmart just announced it’s raising the hourly wage for starting workers at its U.S. outlets to US$11 an hour, an increase of $2 an hour and the third such increase in three years.

The company also said it’s going to pay out bonuses of up to $1,000 per worker and extend benefits for maternity and parental leave. The combined cost of both measures is estimated at $700 million a year.

In a bit of partisan politicking, Walmart linked the move to the recent passage of the Republican-backed tax reform package — although analysts say Walmart will actually save three times as much from the tax cut as it’s giving its workers. But there’s a lot more to the wage and benefit hike than a wish to be nice to employees, or a simple desire to boost Republican fortunes in a congressional election year.

Walmart-watchers say the real reasons behind the wage hikes are twofold. First of all, there’s intensifying competition for workers in a very tight U.S. labour market, where hundreds of thousands of retail jobs remain unfilled. (Competitor Target says it plans to raise its hourly wage to $15 an hour by the end of 2020). If Walmart doesn’t make its jobs more attractive to potential employees, positions will go begging, store shelves will be unfilled, outlets will look dirty and unkempt and consumers will stay away.

The second reason has to do with reputation. Walmart’s has been tarnished for years by stories of its underpaid employees struggling to survive, being forced to turn to food banks to feed their families. It’s a reputation the company is desperate to change. As one retail consultant noted, “Amazon has been viewed as a good citizen. Walmart has been viewed as a bad citizen who is getting better.”

If only Tim Hortons and its misguided Ontario franchisees had taken some advice on reputation management from Walmart.

Instead, the franchisees, who have been waging war for months with the parent company, have turned their anger over the Jan. 1 increase in the Ontario minimum wage into a frontal attack on their own workers and the communities in which they operate. The parent company has done nothing to calm the waters and help find a solution — opting simply to call its offending franchisees “rogue” and leaving customers wondering why they should patronize a company that treats its workers like nothing more than another input cost.

You might think that employers desperate for labour would do whatever they could to keep the good ones from bolting. That logic seems to escape the Tim Hortons franchise operator in Coburg, Ont.

It’s a breathtakingly stupid strategy that threatens to chase away consumers — and, incidentally, help Kathleen Wynne and her undeserving Liberal government stay in power in this year’s elections.

And what could these people possibly expect to gain? As retail analyst Peter Sklar noted, franchisees that reduce hours can expect longer lineups and fewer Timbit sales. And if Canadians are truly sympathetic to the employees being hit by Tim Hortons’ benefit cuts, that could further undercut sales.

If you go past the hysterical outpourings from the likes of the Canadian Federation of Independent Business — which specializes in crying wolf every time there’s a talk of improving the Canada Pension Plan or making any small improvement in the lives of employees — the overall impacts of the minimum wage hike for the economy are quite small.

The increase in the minimum wage to $14 an hour from $11.60 is about 21 per cent. That’s about the same percentage increase as Walmart is voluntarily giving its employees in the U.S. (22 per cent). US$11 is worth about Cdn$13.80. In that context, the Ontario wage hike doesn’t seem unreasonable.

The jobless rate in Ontario is currently 5.5 per cent — about as close to full employment as you can get, making this the best time to implement a big minimum wage hike. You might think that employers desperate for labour would do whatever they could to keep the good ones from bolting.

That logic seems to escape the Tim Hortons franchise operator in Coburg, Ont., who has decided to punish employees for getting a government-mandated wage hike by slashing health and dental benefits and cutting the day off they were getting on their birthday. Breaks will also be cut, according to a memo sent employees, meaning that “a three-hour shift will be paid two hours and 45 minutes.” According to my calculations, that measure will save the franchisee $3.50.

According to the Bank of Canada, about 8 per cent of Canadian employees work for minimum wage and minimum wage rates affect about 15 per cent of all employees with the lowest wages. The bank says the increased wages planned in Ontario and elsewhere could mean that 60,000 fewer jobs are created this year than otherwise — although that’s just a guess.

That may sound like a lot of jobs but it’s a blip in an economy that employs 18.6 million people — a figure that an economist at Scotiabank says is “likely within the margin of error.” It’s worth noting that the Canadian economy created 79,000 jobs in December alone.

As the Bank of Canada noted, even after factoring in a possible reduction of hours worked in the economy resulting from the minimum wage hike, “real labour income should be higher following the implementation of these measures relative to otherwise.”

Which is the whole point of the exercise. The lowest-paid workers in our economy — the people who haven’t shared in the soaring stock and housing markets of the past decades — are getting a raise. It’s about time.

The views, opinions and positions expressed by all iPolitics columnists and contributors are the author’s alone. They do not inherently or expressly reflect the views, opinions and/or positions of iPolitics.

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Alan Freeman is an Honorary Senior Fellow at the University of Ottawa’s Graduate School of Public and International Affairs. He came to the U of O from the Department of Finance, where he served as assistant deputy minister of consultations and communications. Alan joined the public service in 2008 after a distinguished career in journalism as a parliamentary reporter and business journalist for The Canadian Press, The Wall Street Journal and The Globe and Mail. At the Globe, he spent more than 10 years as a foreign correspondent based in Berlin, London and Washington.